Judicial Review – Landlord Tax Grab

Judicial Review – Landlord Tax Grab

1:00 AM, 26th December 2015, About 6 years ago 280

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Landlord Tax – George Osborne Policy To Face Judicial Review.

Private Buy-to-Let housing providers have chosen Boxing Day 2015 to begin their fight back at Chancellor George Osborne and his discriminatory tax regime, announced in the Summer Budget, which only targets private landlords with mortgages via the Judicial Review process.

New tax rules will treat mortgage interest as though it is earned income and push many rental property owners into higher tax brackets. Knock on effects can also include increased CSA payments and removal of other vital benefits but Osborne’s tax measures will not affect the wealthiest landlords (those with no mortgages), or indeed limited liability companies which borrow money to fund buy-to-let property investment portfolios.

Social Media has been buzzing in recent weeks calling for legal action to be considered.

The first step to instigating a Judicial Review is to obtain a detailed Legal Opinion from specialist legal counsel. Omnia Strategy LLP, established in 2011 by Cherie Blair CBE, QC, has been appointed.

The organisers of the campaign have launched a fund-raising appeal via the Crowd Justice website. Thousands of landlords are expected to donate funds.

Letting Agents and Mortgage Brokers are also being encouraged to contribute to the fund raising campaign. This is because their businesses are likely to be hit too if landlords stop investing or choose to sell up.

A member of ICAEW commented;

It is a long established principle of taxation that expenses incurred wholly and exclusively for the purposes of the business are deductible when calculating the taxable profits. Clause 24 of the Summer 2015 Finance Bill contravenes that principle and will result in proprietors of property businesses being liable to tax on a fictitious profit – even if the proprietors really make a loss.

The tax change does not just affect new borrowings. Landlords with existing borrowings will be affected. Portfolio landlords will be particularly badly hit.

As a consequence of the tax change, major changes in the private sector will take place. Some landlords will pass on their increased tax by increasing rents. Others will be forced to sell, as they will not be in a position to pay the extra tax demanded by HMRC. Homelessness will increase as some tenants will not be able to afford higher rents and many will be evicted by landlords forced to sell”.

Mark Alexander, founder of the Property118 Landlords Forum said “it is important for the whole country that funding is raised to win this legal battle. Millions of Britons simply do not qualify for mortgages to be able to purchase a home of their own. The number of people seeking to rent privately has been increasing in line with the growth of the population for decades. It is all very well the government having an ambition for everybody to be a homeowner but they must be made to realise that isn’t realistic. The UK has an ever growing reliance on the Private Rented Sector. Investment and building needs to be encouraged, not taxed into oblivion”

In a letter to the Chancellor, Conservative Lord Flight saidA lot of Buy to Let investment has been an alternative to saving for old age via pension schemes.  Up until World War II investing in rented property was the main method of providing for an income in old age.  Given the poor performance of the Stock Market over the last 20 years, it is hardly surprising that many people have opted for Buy to Let investment as an alternative source of retirement provisioning.  But Buy to Let does not enjoy any of the major tax advantages of pension saving, i.e. tax credit on the amount invested and accumulation of income and capital gains tax free within the pension scheme.  The only Buy to Let “tax advantage” has been the ability of the interest cost to be offset against an individual’s income to determine their tax rates/bill – the very thing which you have attacked.”

When Lord Flight referred to offsetting the interest cost against an individual’s income he of course meant rental income only, not total income.  Buy-to-Let interest is not deducted from any other income that a landlord might have – unlike the way MIRAS used to work.

Nor can Buy-to-Let losses be set off against any other income.  A BTL property has to pay its own way.  If it gives rise to a loss, the owner has to make good the loss out of other taxed income.  Landlords do not receive any tax “breaks”.

BTL has increased housing stock by 2.5 million between 1996 and 2013.

BTL was only responsible for one-twentieth of the 150% price increase between 1996 and 2007, which is insignificant.  Prices would have gone up even more if BTL had not financed the 2.5 million increase in supply – and so would homelessness.

Deducting finance costs from rental income is not a tax relief it is normal accounting practice everywhere, and for every business. That is why Lord Flight put “tax advantage” in inverted commas.

Disallowing finance costs for existing rental businesses is iniquitous and will be damaging for the economy.  Rents will rise.  Tenants who cannot afford the rises will be made homeless, to be put in temporary accommodation in whichever part of the country it can be found, at greater cost.

For these reasons, it is vital for private landlords, tenants and the entire rental sector that this funding campaign is successful.

The window of opportunity to submit an application for Judicial Review closes on 17th February 2016.

The Crowdfunding website page for making donations to the legal action fund can be found via a Google search for “Crowd Justice Judicial Review of Clause 24” or CLICK HERE.

Further information link

JUDICIAL_REVIEW



Comments

by jack hammer

13:53 PM, 26th December 2015, About 6 years ago

Pledged, and many thanks for all your efforts on this Mark!

by Gareth Wilson

14:36 PM, 26th December 2015, About 6 years ago

Don't stop now everyone!

The Crowd-Funding site has already adjusted to take further pledges beyond the first £15'000 target, for funding of the additional costs associated with the judicial review:

https://www.crowdjustice.co.uk/case/clause24/

Let's keep the momentum going!

by Dr Rosalind Beck

15:05 PM, 26th December 2015, About 6 years ago

Reply to the comment left by "michael fickling" at "26/12/2015 - 11:57":

Thanks for those points Michael. I have incorporated them into the brief for the lawyers.

by Alan Wong

16:23 PM, 26th December 2015, About 6 years ago

Can we all circulate this to as many people affected as possible and ask for their support?

by Chris Byways

17:10 PM, 26th December 2015, About 6 years ago

Astounding well over £18k by 5pm on Boxing Day alone.

A - Pledged.

B - Point 2 on Pledge site could mention this is retrospective on anyone already taken out a 10 year mortgage with hefty exit penalties.

C - how can this need to challenge be sold to non mortgage LLs, corporates, and other businesses, even tenants?

IE possibly destabilise house prices - very unlikely if only 50% or less of LLs divest properties, UNLESS the Daily Mail front page headlines say "House Prices to crash 70%" creates a self fulfilling prophecy!

Or the rent increases,
and the evictions on sold and repossessed properties. One or the other is a certainty.

And the risk to other businesses from copycat tricks.

But if he doesn't get his money this way he will some other way and the small PRS he sees as a vote winner to kick.

We still need more thought on the alternative vehicle structure. If GO has one in mind he has kept silent on it. But he must know something has to change.

by Denise G

17:47 PM, 26th December 2015, About 6 years ago

pledged and shared

by Ian Hamilton

20:37 PM, 26th December 2015, About 6 years ago

The tax grab amounts to the state confiscating the citizens assets. It wouldn't surprise me if the government are helping the banks get back the mortgages that have gone wrong for them, because many track the base rate.
The smear campaign against good landlords is a disgrace, but now the fight back has begun, well done Mark Alexander and Co!
P.s when landlords realise that the huge increase in tax is compounded by the fact that we have to pay tax on account for the following year. Many will be made BANKRUPT by the state.

by Gareth Wilson

23:57 PM, 26th December 2015, About 6 years ago

At present we're at £22'231...

In one day, the target we needed to hit by the end of January has been met and we're nearly halfway towards the phase 2 enlarged target.

by steve p

1:06 AM, 27th December 2015, About 6 years ago

Not sure if anyone else has seen this.....

http://www.landlordsguild.com/hmrc-reminds-landlords-they-may-have-to-pay-ni/

basically an update from HMRC that says people that have a portfolio of properties and thus are running it as a business are to pay class 2 NIC's....

So HMRC are looking to say we are running a business so should pay NIC's and the government are saying we are not a business but an investment so we don't have to be treated tax wise in the same way as a business.... Talk about wanting their cake and eating it..

by money manager

7:42 AM, 27th December 2015, About 6 years ago

The NI warning was, and I haven't seen anything to the contrary, not in respect of the letting business per se but ancilliary services that a landlord might offer such as cleaning,

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